Two Ethereum token standards, two different worlds—fungible and non-fungible. Here’s what sets them apart.
The Origins of ERC20 and ERC721
ERC20 tokens rose to prominence in the early days of Ethereum, particularly during the ICO (Initial Coin Offering) boom of 2016. These tokens introduced a standardized way to represent fungible assets—tokens that are uniform and interchangeable—making it easy to launch digital currencies and utilities within decentralized applications.
ERC721 emerged in 2017 with the launch of CryptoKitties, a game that introduced a new digital asset model: one where each token was unique. This marked the birth of the non-fungible token, suitable for assets like digital art, collectibles, and identity markers, where one unit cannot be simply swapped for another.
Fungibility: The Core Distinction
At the heart of the ERC20 and ERC721 distinction lies the concept of fungibility.
ERC20 tokens are fungible. Each token is exactly the same as every other token of its kind. One unit can be replaced with another without affecting its value or function—much like fiat currencies. Whether you’re holding 1 LINK or 1 DAI, they are identical to any other unit of the same type.
ERC721 tokens, on the other hand, are non-fungible. Each token has a unique identity, metadata, and ownership. A CryptoKitty or a Bored Ape NFT, for example, cannot be exchanged 1:1 with another, because each carries different traits and histories. These tokens are digital collectibles and are valued for their individuality.
Technical Structures and Functions
ERC20 tokens follow a relatively simple and efficient structure, making them ideal for use cases that require mass issuance of identical assets. The standard includes essential functions such as transfer(), approve(), and totalSupply(), among others. These enable basic actions like sending tokens, authorizing others to spend them, and tracking overall supply.
ERC721 tokens, meanwhile, are more complex. Each token has a unique identifier (tokenId) and can carry rich metadata describing the asset. While they also support functions for ownership and transfer, they do not support divisibility—meaning you cannot hold a “half NFT” the way you might hold 0.5 ETH.
Practical Use Cases
ERC20 tokens are commonly used for utility, governance, and transactional purposes. They power DeFi platforms, reward mechanisms, in-game currencies, and much more. Tokens like UNI, AAVE, and LINK fall under this standard.
ERC721 tokens are used to represent digital ownership of unique items. This includes digital art, music, in-game assets, virtual real estate, and digital identities. They form the backbone of the NFT ecosystem, enabling secure and traceable ownership of scarce digital goods.
Vulnerabilities and Limitations
ERC20 tokens are widely adopted but come with risks. A common issue arises when tokens are sent to incompatible contracts—if a contract does not support the ERC20 interface, those tokens can be permanently lost. The standard also lacks native handling for rich metadata.
ERC721 tokens, while more versatile in some ways, are typically more expensive to mint and transfer due to their complexity. Their indivisibility can also limit flexibility in applications that might benefit from fractional ownership—unless paired with additional mechanisms like ERC1155 or external fractionalization protocols.
Which Token Standard Should You Use?
The choice between ERC20 and ERC721 is not a matter of superiority, but of application.
If you are building a DeFi platform, issuing a governance token, or launching a payment token, ERC20 is likely the appropriate choice due to its efficiency and simplicity.
If your project involves unique digital assets, such as art, avatars, collectibles, or items tied to specific user identities, ERC721 is the standard designed to meet those needs.
Each serves a different, yet complementary, role in the growing Web3 ecosystem.
What Comes Next?
Token standards continue to evolve. Emerging protocols like ERC1155 combine the features of both ERC20 and ERC721, enabling developers to issue both fungible and non-fungible tokens from a single smart contract. ERC777 improves on ERC20 by offering advanced hooks and interoperability, while Soulbound Tokens explore identity-linked tokens that are non-transferable.
These developments indicate that the future of tokens is not only multi-functional but also more expressive and user-centered.
Conclusion
ERC20 and ERC721 are foundational building blocks of Web3. They define how value is stored, transferred, and represented across decentralized platforms. Understanding the differences between them is essential for developers, investors, and users who wish to navigate blockchain ecosystems with confidence.
Whether powering decentralized economies or creating digital scarcity, these token standards continue to shape the digital future—one line of code at a time.
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